SIGN PREDICTIONS OF EXCHANGE-RATE CHANGES - CHARTS AS PROXIES FOR BAYESIAN INFERENCES

Sign Predictions of Exchange Rate Changes: Charts as Proxies for Bayes ian Inferences. - One recurrent and controversial feature of high-freq uency exchange rate returns is the apparent profitability of simple ch artist rules. This paper attests the relevance of these rules for pred icting the upward and downward tendencies in speculative prices. First , it is shown by means of a variant to the standard Markov switching m odel that there are swings in the mean for various weekly exchange rat e returns. The paper proceeds by showing that certain chartist rules d etect these regime shifts quite accurately. As such, these rules can b e interpreted as workable proxies for the Bayesian filtering rule of H amilton.